Citi Says Can't Rule Out Athenahealth Sale With Elliott Involved
Citi analyst Garen Sarafia raised his price target on athenahealh (ATHN) saying Elliot Associates' recently disclosed stake in the company reinforces his favorable view and likely provides a support level for shares. Additionally, a sale of the company "cannot be ruled out" given the activist investor's track record, Sarafia argues.
BACKGROUND: On May 18, Elliott Associates, Elliott International and EICA disclosed in a regulatory filing that they collectively have combined economic exposure in athenahealth of approximately 9.2% of the common stock outstanding. Elliott said it may "consider, explore and/or develop plans and/or make proposals" to athenahealth and intends to communicate with the company's management and board "about a broad range of operational and strategic matters."
CITI UPS TARGET: Sarafia raised his price target for athenahealth to $163 from $128 citing Elliott's involvement, pointing out that in the investors' engagement in nearly 40 campaigns since 2013, slightly over half of which resulted in a sale. As a result, he believes potential M&A scenarios "cannot be ruled out." The analyst said potential acquirers of athenahealth would include tech companies aiming to build a healthcare presence, including IBM (IBM), which has made several recent acquisitions to bolster its healthcare network. He added that Aetna (AET) and UnitedHealth (UNH), through its Optum business, may also be potential suitors, although UnitedHealth is currently under agreement to use Allscripts (MDRX) software. Sarafia added more distant possibilities include healthcare tech companies Cerner (CERN) or privately-held Epic. He, however, believes a "collaborative engagement to unlock sustainable value" is a likely scenario over an acquisition, citing the company's history of engagement with large shareholders. In addition, Sarafia said the activist stake will make operational improvements at the company a high priority, with a renewed focus on core strengths, potential cost-cutting in general and administrative expenses and possibly research and development, and increased free cash flow. He keeps a Buy rating on the shares.
GIGAMON EXPLORES SALE: Supporting the argument of a potential sale of athenahealth, Reuters reported Gigamon (GIMO) is exploring a sale after Elliott Associates recently disclosed a roughly 15% economic exposure in its shares and encouraged the company to undertake a strategic review process. The software maker has begun working with Goldman Sachs (GS) to talk with companies and private equity firms interested in acquiring it and could attract interest from Hewlett Packard Enterprise (HPE), F5 Networks (FFIV) and PE firm Thoma Bravo. Following the report, Needham analyst Alex Henderson raised his price target to $50 from $34 on the stock and estimated that a fair value for Gigamon is in the $50-$55 range. He keeps a Buy rating on the stock.
PRICE ACTION: In morning trading, athenahealth rose nearly 1% to $139.30, while Gigamon jumped 10% to $43.25 per share.
Disclosure: None.